Pellerano & Herrera The Pellerano & Herrera Foundation

Tax procedure is simplified the Dominican Republic

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The government of the Dominican Republic has issued a Simplified Tax Procedure (STP) for reporting and paying Income Tax and Value Added Tax (ITBIS) to help small local taxpayers, lacking an organized accounting system, to comply with their tax obligations.

The procedure, issued in Presidential Decree No. 758-08 on November 24, 2008, is intended to benefit:

a) The individual or business taxpayers whose annual purchases do not exceed USD$841,000; this amount will be adjusted annually to reflect the inflation rate.

b) The individual or wholly owned business with no organized accounting system whose annual income does not exceed USD$178,000, such as beauty parlors and professionals (including lawyers, doctors, accountants, and engineers); this amount also will be adjusted annually to reflect the inflation rate.

c) Taxpayers that currently are under a Simple Estimate Regime that must choose one of the two methods of the STP or the ordinary regime.

The main benefits of the STP are that:

·Organized bookkeeping is not required

·No advance payment of income tax is necessary

·No payment of tax on assets is necessary

·There is automatic payment agreement on income tax (three installments for purchases and two installments for income)

·No payment of income tax is required for the first six months of the year

·There is no need to report on tax certificates on purchases and sales from the previous year

The Purchase Method

Every year, the Direccion General de Impuestos Internos (DGII) will provide the taxpayer with an estimated tax return, which the taxpayer must accept or reject by June 31.

The estimated tax return is determined by applying an established rate, based on commercial activity, to gross income (gross sales), with a margin of profitability factored in, according to commercial activity.  This amount is the taxable net income to which the income tax is applied.

Payment can be made in three installments: the first one, consisting of 50% of the amount due by no later than July 31; and the second and third installments, each one consisting of 25%, by no later than October 15 and December 15 of the same year.

Accordingly, for the liquidation and payment of the ITBIS, taxpayers using this method must pay the amount that results from applying an established rate, based on commercial activity, to the gross income and subtracting their purchases to determine the taxable amount (gross added value). An exemption rate is applied, according to type of business.

The Income Method

The annual tax return must be paid in two equal installments: the first, paid by the last working day of February, and the second, paid by the last working day of August, of the year following the applicable tax period.

The income tax in this method is calculated by applying the rate of net taxable income that results from reducing the taxed income by 40%. In addition to this reduction, taxpayers benefit from an annual exemption applied to the tax rate.

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